Interest Rates in Croatia to Increase, Warns HNB Governor

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HNB Governor Vujčić warns about high likelihood that interest rates for loans will increase.

Governor of the Croatian National Bank (HNB) Boris Vujčić said that the era of low interest rates on loans in euros was near its end, reports on December 27, 2016.

Asked how much interest rate on euro loans could grow, Vujčić said that he did not expect their increase in the short term, but that in the medium term there was such risk and confirmed that this could happen in 2018. “I think it is good that people are now demanding fixed interest rates. When you look at the new loans, they are mainly at fixed interest rates and are increasingly denominated in the kuna”, said Vujčić.

The era of low interest rates and monetary policies that we have had so far is over. As for the European Central Bank, it will keep the current monetary policies until the end of 2017, which means that it does not plan to increase interest rates. But, we can say that the probability that we will have such a favourable financial environment with such low interest rates of the central banks is slowly coming to an end, said the HNB Governor.

Asked about the impact of HNB on interest rate trends, Vujčić said that HNB, with expansionary monetary policies, provoked a substantial decline in interest rates for loans denominated in the kuna.

Vujčić was also asked about whether a new economic crisis could hit Croatia if it did not implement the reforms. He said that, in that case, there would definitely be major risks when the situation on the international financial markets changes. If Croatia still has relatively high levels of external and public debt – it will fall, but not very quickly – without enough GDP growth and structural changes which would lift the potential GDP growth rate, we could find ourselves in a situation which will not be easy, said Vujčić. “I sincerely hope that we are not doomed to a lack of reforms and that they will finally begin to be implemented. We must be aware that they are absolutely necessary”, said the Governor.

When we compare Croatia with other European Union countries, structurally we are the worst economy, while in some other areas we are near the bottom. In this way, we cannot achieve long-term growth and increase the wealth of Croatia’s citizens. That is something that there should be a consensus in society about, warned Vujčić.

Asked about possible return of an economic crisis, Vujčić said that it was a risk that the main drivers of growth were moving towards personal consumption, which means that Croatia will not be able to achieve growth higher than about three percent. And given the level of Croatia’s debt and the potential risk of rising interest rates, we need higher growth rates, concluded Vujčić.


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